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Why San Francisco Beat Detroit

Originally published in Bloomberg News

October 29, 2012

Edward Glaeser (Glimp Professor of Economics, Harvard University)

Couldn’t the San Francisco Giants, representatives of the second-wealthiest U.S. metropolitan area, manage to lose at least one World Series game to the Detroit Tigers, the standard-bearers for one of the most troubled U.S. urban areas?
The ever-magnanimous New York Yankees generously boosted the Motor City’s morale by giving the Tigers a clean sweep in the American League Championship Series, but the Giants crushed their opponents. Perhaps the Giants felt compelled to send the country, and our presidential candidates, a clear reminder that their home city, and not Detroit, provides a clear model for America’s economic future.
Yet their victory should also remind us that the San Francisco model is not always kind to less-skilled Americans.
As recently as the early 1970s, San Francisco and Detroit seemed to be on a similar trajectory. The San Francisco area’s per capita income was 31 percent higher than the U.S. average in the 1970 census; incomes in Detroit were also a healthy 18 percent above the nation. Their central cities had both been declining from 1950 to 1970, like most older U.S. urban areas. Murder rates were already quite high in Detroit, but San Francisco was filled with fear of the Zodiac Killer, who provided the model for Dirty Harry’s first antagonist. Income Disparity
Today, the two areas couldn’t seem more different. In 2010 (the latest year available), per capita income was $59,295 in the San Francisco area, which was wealthier than any metropolitan area except for Bridgeport, Connecticut (including Greenwich and Stamford). It was $38,197 in the Detroit area. The mean household income in the city of San Francisco in 2011 was more than $100,000; the comparable number for the city of Detroit was $35,709. The unemployment rate in greater San Francisco is 8.2 percent; the unemployment rate in greater Detroit is 10.9 percent. San Francisco had about six murders per 100,000 people in 2011, while Detroit had more than 48 murders per 100,000.
Those remarkable economic and social differences help explain the different population paths of the two cities since 1970. Detroit’s population declined by 37 percent from 1970 to 2000, and fell by an additional 25 percent from 2000 to 2010. San Francisco’s population actually rose by more than 12 percent from 1970 to 2010. In 1950, Detroit’s population of 1.85 million was 139 percent higher than San Francisco’s population, but today San Francisco is the more populous city, despite Detroit’s having more than twice as much land.
Detroit’s decline was rooted in its spectacular 20th century rise. Like San Francisco, Detroit rose as a port -- the city is named for straits that ultimately connect Lake Huron (via Lake St. Claire) and Lake Erie. Companies, such as Detroit Dry Dock, formed on those straits to sell to the vast flows of American waterborne commerce. Those companies provided training for talented farm boys, such as Henry Ford, who ultimately became one of Detroit’s great automobile entrepreneurs -- a cluster comparable in every way to the nexus of talent that gathered in Silicon Valley 70 years later.
The talented men -- Charles Kirby, the Dodge Brothers, the Fisher Brothers, Ransom E. Olds (in Lansing), Billy Durant (in Flint) -- competed and cooperated and collectively created the mass-produced automobile.
Ford’s big idea was mass production with automated assembly lines, and this innovation both made Detroit marvelously productive and blessed ordinary Americans with wonderfully affordable Model T’s. Ford paid $5 a day, bringing remarkable prosperity to ordinary Americans, something that San Francisco’s Silicon Valley has so far failed to achieve. Isolated Factories
But vast factories, such as Ford’s River Rouge, are kingdoms unto themselves. They don’t need the cities that surround them, and when economic conditions change, factories are relocated to lower-cost areas, such as the right-to-work states of the South and the developing world.
San Francisco’s manufacturing base, including its once- mighty shipyard at Hunter’s Point, also declined after World War II. But the city, unlike Detroit, was able to rebuild itself, because it had skills and entrepreneurship.
Detroit in its heyday was marvelously productive, but it was never education-intensive. In 1950, only 5 percent of the Detroit area’s adults had college degrees and that number had only increased to 9 percent by 1970. Wages were so good in the factories, why would anyone waste time in college? Nine percent of the San Francisco area’s adults had college degrees in 1950, and that number had doubled by 1970.
From 1940 to 2000, those places that started with slightly more education typically experienced far faster growth in human capital. By 2000, 44 percent of greater San Francisco had a bachelor’s degree, as opposed to 23 percent of adults in greater Detroit.
Informal skills, learned on the job and at the breakfast table, such as the talent and inclination to be an entrepreneur can be even more important for urban success. Detroit taught plenty of informal skills, especially around the assembly line, but its big companies didn’t inculcate entrepreneurship.
The middle managers of General Motors may have been superb cogs in a corporate machine, but they were not trained to start an electronic greeting company if things went wrong for GM. San Francisco had fewer dominant companies and consequently more entrepreneurs per capita. Entrepreneurs, such as Donald Fisher, who founded San Francisco’s the Gap, always play an outsize role in urban rebirth.
Skills enabled San Francisco to specialize in creating ideas, while Detroit remained a center of goods production. Measures of skill, such as the share of the population with a college degree, do a good job explaining the relative success of U.S. cities. Measures of entrepreneurship, such as having a lot of small companies, also predict employment growth. Weather Matters
Globalization has been kind to idea-intensive workers, who can now capitalize on their insights by selling and producing across the world, but it has been murder on good U.S. producers who face cutthroat competition from overseas. San Francisco also has better weather, and temperature in January is yet another predictor of urban success.
President Barack Obama points to assembly lines as a symbol of his success in rebuilding America, but Detroit doesn’t seem like an urban success story to me. In 2011, 37 percent of Detroit residents older than 16 were employed, as opposed to 63 percent of San Francisco’s adults. It is easy to imagine that San Francisco’s corporate heroes, such Apple Inc. and Google Inc. and Twitter Inc., will lead the world in the 21st century. It is far harder to imagine any similar success for General Motors, despite the bailout.
San Francisco’s success symbolizes the extraordinary importance of education and innovation, which are the ultimate creators of urban and national success. Detroit’s failure reminds us that American manufacturing faces the tremendous challenge of competing with lower-wage areas.
Yet I understand President Obama’s fondness for assembly lines: Those assembly lines provided an enormous number of decent jobs for ordinary Americans. Henry Ford provided employment for hundreds of thousands of less-skilled Americans. Apple’s success has brought wealth to thousands of skilled Americans, but manufacturing predominantly occurs offshore. A more prosperous future for all Americans must combine the innovation of Silicon Valley with the inclusiveness of Detroit. I hope that the next generation of U.S. entrepreneurs will figure out opportunities for the millions of less-skilled Americans. Every unemployed person is ultimately a failure of entrepreneurial imagination. Until that happens, we must invest more in educating the less fortunate, and hope that a bit of Detroit’s ability to employ the less skilled rubs off on San Francisco, and a bit of San Francisco’s economic energy rubs off on Detroit.